4.1 Importance of Sustainability Planning

Many existing campus-based publishing collaborations pay less direct attention to sustainability planning and financial structures than to the design and technical implementation of the collaborative projects themselves. Such a focus is understandable, as working through these sustainability issues requires that a collaboration’s partners reconcile significant operational and cultural differences. However, as libraries and presses move beyond narrowly defined, low-risk projects to undertake more ambitious long-term publishing programs, resolving these differences becomes increasingly critical to success.

This section describes the organizational context in which most collaborations will operate, including:

the disparate funding models of the library and the press, and why they must be reconciled to support significant, long-term collaboration;

the potential benefits of earned revenue for fulfilling a collaboration’s mission; and

the utility of business principles—irrespective of funding model—for managing a collaboration.

Together these sections provide an overview of the financial and business issues many libraries and presses face in collaborating and offer practical insight on how a collaboration might be structured and managed.

4.2 Reconciling Financial Models

Many current publishing partnerships are of limited scope and duration. For a collaboration with relatively modest goals, a temporary diversion of staff time and/or a limited capital outlay may provide sufficient resources for its projects. However, such an ad hoc approach will often be ill-suited for sustaining more ambitious, long-term collaborative programs.

Libraries and university presses share much in common: both operate on a nonprofit model and each seeks, in its own way, to fulfill a mission that serves the needs of its host institution. However, there are real differences in the operating structures and strategies of libraries and presses, and these must be reconciled to allow a library-press partnership to realize its full potential. If these differences are not explicitly recognized and accommodated, the library may not consider its mission objectives to be adequately served and the press may not be able to commit significant resources to a long-term collaborative publishing program. In such cases, collaborative activity would lack the full commitment of both partners, and as a result, the scale, scope, and duration of collaborative projects would be limited.

University presses are sometimes characterized as resistant to change or unsupportive of new models that might support scholarly communication in a networked, digital publishing environment.[45] Indeed, some university presses may view the range of potential business models narrowly, focusing on established market models, even when those models are beginning to fail. However, considering the limited resources, slim margins, and cost-recovery expectations under which presses must typically operate, this conservatism is scarcely surprising.

If a university press were to be fully subsidized by its host institution—a remote contingency under the prevailing model, in which relatively little of the press’s activity directly benefits the host institution—then it might operate under the same funding model as the library. Unless such an improbable transformation takes place, practical reality dictates that a partnership establish a financial structure that reconciles the disparate funding models under which each partner operates.

Libraries and academic computing centers are funded by institutional standing budgets, while university presses generate most or all of their operating budgets through earned revenue from market activities. A typical breakdown of an institutional library’s funding sources would include about 75-85% from university appropriations and about 5-15% from designated funds, with the balance coming from sponsored programs and endowments.[46] In terms of expense categories, approximately 45% of a university library’s budget will typically cover staff costs and 40% will go towards materials acquisitions, with other operating expenses representing 15% of the budget.[47]

On average, university presses operate on a combination of earned income (80-90%) and institutional subsidies (5-15%), supplemented by title subsidies and endowment income (5%).[48] As presses depend on earned revenue for 80-90% of their operating budgets, they must manage their publishing activities overall to balance mission fulfillment and revenue generation. Some press projects will balance both the press’s mission and revenue objectives, while other projects may cross-subsidize mission-worthy publications that are incapable of covering their own costs. Whatever the mix, overall, the press must manage its publishing portfolio to cover both direct and indirect costs to remain operationally self-sustaining.

Recognizing the requirements of the press’s funding model will allow a collaboration to channel subsidies and/or create hybrid revenue-subsidy models that permit the press to participate fully in a collaboration. For presses and libraries to collaborate successfully requires a funding model and financial structure that allows the press to participate without diverting resources from other mission-critical publishing programs. If a collaboration fails to accommodate the requirements imposed by the press’s financial model, then participation in the collaboration would require the press to divert resources from other subsidized mission-critical publishing activities, which may be highly valued by the host institution and its faculty.

4.2.1 Partnership Funding Models

The need for a shared financial understanding remains, irrespective of the source of a partnership’s income. A partnership’s strategic objectives, and the types of projects that it intends to undertake as a result, will affect whether subsidies, earned revenue, or a combination of the two provides a viable business model for its projects.

If the partnership emphasizes open-access models, or provides products or services that cannot capture sufficient value on the open market, then the potential for generating self-sustaining revenue from those activities may be limited. Even where its activities are capable of generating earned revenue, a market approach might compromise the collaboration’s mission and objectives by limiting its target audiences’ access to the products or services it offers.

If a partnership were to secure a subsidy sufficient to fund all of the activities necessary to achieve its mission, then there would be no need for it to use revenue-generating models. However, there may be instances where partners want to pursue activities for which a) adequate subsidies are not available and/or b) an earned revenue model provides a viable source of income.

4.2.2 The Role of Earned Revenue

Ideally, a campus-based publishing venture would receive subsidies from its host institution commensurate with the full mission value it delivers. In practice, this will seldom be the case. Competition for scarce institutional resources, coupled with the problems inherent in demonstrating and quantifying the mission value delivered by its activities, may leave a partnership inadequately subsidized to fully achieve its objectives. In such situations, a collaboration may elect to generate earned revenue by imposing fees for some or all of its products and services.

Although university presses work under a market model, they operate differently than commercial entities. While commercial publishers maximize profits, university presses seek to maximize mission attainment, publishing as much high-quality content as their resources allow. However, mission maximization is subject to financial constraints. By exploiting market opportunities to generate income, a publishing partnership can relax the financial constraint and thus fuel greater levels of mission attainment. In this way, a partnership may be able to pursue more activities that fulfill its mission with a combination of subsidy and earned revenue than by subsidy alone. As long as the income-generating activities are well aligned with the partnership’s mission—and revenue generation serves as a means to an end, rather than an end in itself—the market activity may contribute positively to achieving the mission. In such cases, the surplus generated can be applied to support publishing programs that do not generate revenue, and that might otherwise not be possible.[49]

A partnership can subsidize financially unprofitable projects from the revenue contributed by projects that generate a surplus and/or from income from institutional subsidies and other sources. If all the partnership’s projects were to generate positive financial contributions, there would be no need for cross-subsidies. However, for many partnerships, some projects will require cross-subsidies from projects with positive contributions.

In terms of program investment decisions, the marginal cost of increasing the publishing program should equal the marginal mission attainment per dollar spent plus the marginal revenue generated.[50] A publishing project with a positive financial contribution—the difference between what the project generates and the direct costs it incurs—provides funds available for cross-subsidizing publishing activities that support the program’s mission, but that are not financially self-sustaining. Although this approach does not avoid the problems inherent in assigning a financial value to mission attainment, it does provide a financial framework in which the projected returns can be assessed.[51]

4.3 The Utility of Business Principles

The aggressive market practices of some commercial publishers have tainted the perception of market-based publishing models for many in the academy; indeed, such excesses will sometimes provide the impetus for library participation in online publishing collaborations. However, business processes and market models do have relevance and utility for campus-based publishing partnerships. Regardless of whether it uses a subsidy or earned revenue model, a collaboration can benefit from the market orientation that a press brings to the partnership. It will be important for library partners in collaborations to examine where resistance to market forces and business principles represent a genuine value conflict, as opposed to cultural stereotyping.[52]

Here the distinction between competition and profit as motivators for campus-based market activities is instructive. Campus-based publishing collaborations need to couple the feedback mechanisms and performance stimulants of market participation with the value-driven goal of mission attainment. As Bok and others have observed, market forces compel nonprofit entities to assess both what they do and how well they do it. [53] Markets provide incentives to respond to demand and to improve operating efficiency and productivity. All things being equal, cost savings from increased efficiency fund cross-subsidies for non-revenue generating projects with high mission value and allow an initiative to charge less for its services than profit-maximizing ventures. The pressures of market competition on revenue contribution—which funds mission attainment—should prompt productivity improvements, including gains in efficiency that the collaboration would not have undertaken had it been insulated from competition.

Thus, while complete reliance on the market and earned revenue would expose a collaboration to forces that may not align well with its mission and values, ignoring the market sacrifices the discipline that market participation requires. Stated negatively, insulation from market forces can reduce the mission relevance and financial value of a partnership’s output, lower its operating efficiency, and result in the suboptimal use of resources.

The issue in applying business principles and practices is not that a partnership should alter its mission—in terms of what it publishes or the constituencies it serves—in order to generate a surplus. Rather, that in serving its mission, the collaboration operates as efficiently and cost effectively as possible given the resources available. This will allow the partnership to better serve the needs of its constituencies by funding activities with high mission value, but low market value.